Dollar Trouble
Wednesday, May 10th, 2006
By Michael Lombardi, MBA for Profit Confidential
In America, we are not feeling it yet. But the rest of the world is. What I’m talking about is the slowly devaluing U.S. dollar. Here, at home, if the U.S. dollar falls in value against other world currencies we don’t feel it unless we are traveling outside the U.S. (try going to Europe this summer… the greenback won’t get you much there).
Yes, as the U.S. dollar falls even further Americans will start to see the price of popular imports like electronics start to rise in price. Even low-priced items at stores like Wal-Mart will move higher in price as it will cost Wal-Mart more American dollars to buy Chinese imports.
It’s the foreigners who are feeling the pinch of a lower U.S. dollar. Imagine all those Europeans, Canadians, and South Americans who bought vacation condos in Florida and California. They can’t sell them because the currency hit would be too hard for them to handle. The same holds true for the foreigners who loaded up with U.S. stocks.
Today, the U.S. Fed will raise rates for the sixteenth time in a row. It’s unbelievable to me that after 16 interest rates hikes, the U.S. dollar is worth less against popular foreigner currencies today than it was worth before the rate hikes began! Is it any wonder the price of gold bullion just keeps rising?
In the short-term, a steady devaluation of the U.S. dollar is good for America. Foreigners will find travel and vacationing in the U.S. more than affordable this summer (boosting the U.S. travel industry), U.S. manufacturers might see new demand for their products as foreign-made products get too expensive and foreigners holding U.S. assets might find themselves hard-pressed to sell.
But the long-term costs of a weak U.S. dollar are many: U.S. interest rates won’t be able to fall because the dollar could collapse. Foreigners could become wary of further investments in the U.S. unless those investments provide high returns. Oil producers might start asking for something other than U.S. dollars for their oil. Gold may again become the official reserve currency of foreign central banks.
The new Fed chief has his work cut out for him. The U.S. dollar is in deep trouble. But interest rates can’t go too high because the U.S. economy will be choked: quite a balancing act going on.
The Canadian dollar hit a new 30-year high against the U.S. dollar this week. I can only hope my U.S. readers heeded my suggestion and bought their stocks on the main Canadian exchange, the TSX as most major U.S. stocks are listed on the NYSE and the TSX. If not, it’s not too late. I believe the Canadian dollar could easily rise another 20% against the U.S. Dollar.
Next Post: Navigating the Mining Sector
Previous Post: Trend is Down
Tags: gold, interest rates, price of gold bullion, U.S. dollar
Tweet
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
